Fitch Ratings assigns an 'AA+' rating to up to $500 million of bonds to be issued by or on behalf of the University of Chicago (UC, or the university) in the following series:
--Illinois Finance Authority tax exempt revenue bonds, series 2012A;
--Taxable fixed rate bonds, series 2012B.
The series 2012A and B bonds are expected to price via negotiated sale on or around January 17. Bond proceeds will be used to finance various capital improvement projects, refinance up to $200 million of outstanding debt, and pay costs of issuance.
In addition, Fitch affirms the long and short-term ratings on various UC revenue bonds as detailed at the end of this release.
The Rating Outlook is Stable.
Revenue bonds are an unsecured general obligation of UC, payable from all legally available revenues.
KEY RATING DRIVERS
PREMIER ACADEMIC REPUTATION: UC's 'AA+' rating reflects its status as one of the world's leading comprehensive research universities. Counterbalancing credit factors include a large capital plan and increasing, yet manageable, financial leverage.
HIGHLY COMPETITIVE ADMISSIONS: UC's prestigious reputation enables it to maintain consistently strong student demand, evidenced by annual growth in applications, increasingly selective admission rates and solid new student matriculation.
STRONG FINANCIAL PROFILE: The university maintains a generally positive operating margin, inclusive of endowment spending, fueled by a diverse revenue base, substantial balance sheet resources, and manageable debt burden.
MANAGEABLE CAPITAL PLANS: While UC's extensive capital program will result in additional debt issuance over the near term, the university's sophisticated and proactive leadership team has demonstrated flexibility in controlling the timing of these expenditures and delaying the execution of projects as needed.
SHORT TERM RATING: The 'F1+' rating is based on the immediate availability of high quality, liquid resources to support a failed remarketing of UC's variable-rate demand bonds (VRDBs) and/or roll-over of outstanding commercial paper notes (CP, not rated by Fitch).
Impressive balance sheet liquidity, driven by significant fundraising abilities, remains a key credit strength of the university. Available funds, defined as cash and investments not permanently restricted, grew to $5.1 billion as of June 30, 2011 from $4.38 billion as of June 30, 2010, covering fiscal 2011 operating expenses ($1.84 billion) and pro forma debt (approximately $2.5 billion) by a strong 2.77 times (x) and 2.04x, respectively. The available funds balance declined slightly to $4.99 billion as of Sept. 30, 2011. Typical of well-endowed private institutions, UC maintains considerable exposure to alternative, illiquid asset classes. However, the university's liquidity needs are managed by its significant level of internal resources, as well as supplemental liquidity and/or dedicated bank lines of credit. Fitch also views favorably, UC's impressive treasury and risk management practices, which the university has spent considerable time and effort to enhance in recent years.
UC's stable operating performance, inclusive of endowment spending, is supported by a diverse revenue base, with no one revenue source representing more than one third of unrestricted operating revenues. The university's operating margin was 0.9% in fiscal 2011 and averaged a similar 0.9% over the past five fiscal years. Enrollment growth and investment returns on UC's endowment helped contribute to the positive operating performance. UC's ongoing capital program includes $1.2 billion of projects from fiscal years 2010 to 2015, which are expected to be financed through a mix of debt, gifts and targeted revenue sources. These projects are either under construction, under design, or in the planning stage; timing for project activation depends upon market conditions, debt capacity, and financial results. Following issuance of the series 2012 bonds, UC anticipates issuing up to an additional $300 million of debt over the next two fiscal years.
The 'F1+' rating is based on the availability of highly liquid, highly rated securities to cover potential maximum liquidity demands presented by UC's outstanding VRDBs and CP program. As of Sept. 30, 2011, UC had about $1.31 billion in available cash, cash equivalents and fixed-income securities, plus $300 million of dedicated liquidity facilities available in the event of a failed remarketing. Together, these liquid assets provide 1.98x coverage for about $813.5 million of identified variable-rate obligations (including total CP authorization of $200 million and $141.2 million drawn on general bank lines of credit). For an 'F1+' rating, Fitch typically expects coverage of at least 1.25x. The aforementioned liquidity calculation excludes $114.5 million of outstanding series 2008 VRDBs, which are separately supported by a standby bond purchase agreement (SBPA).
Founded in 1890, UC is a private comprehensive university located in Hyde Park, eight miles south of downtown Chicago. Its prestigious reputation is the basis of its highly selective demand characteristics at both the undergraduate and graduate levels. UC's fall 2011 undergraduate acceptance rate was an impressive 16%, with a solid 40.5% of accepted students choosing to enroll. Fall 2011 headcount was 15,265.
Fitch affirms the following ratings:
--$1.07 billion revenue bonds at 'AA+';
--$472.3 million adjustable-rate revenue bonds at 'AA+/F1+';
--$114.5 million adjustable-rate revenue bonds, series 2008 at 'AA+';
--$300 million taxable revenue bonds, series 2010 at 'AA+'.
A short term 'F1+' rating on the series 2008 adjustable-rate bonds is supported by an SBPA provided by Bank of America, N.A.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the U.S. College and University Rating Criteria, this action was informed by information from Prager, Sealy & Co., LLC, the university's financial advisor.
Applicable Criteria and Related Research:
--'U.S. College and University Rating Criteria' (July 14, 2011);
--'Revenue-Supported Rating Criteria' (June 20, 2011);
--'Criteria for Assigning Short-Term Ratings Based on Internal Liquidity' (June 20, 2011);
--'The University of Chicago' (May 7, 2010).
Applicable Criteria and Related Research:
U.S. College and University Rating Criteria
Revenue-Supported Rating Criteria
Criteria for Assigning Short-Term Ratings Based on Internal Liquidity
The University of Chicago
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